How Does Condo Unit Owner Bankruptcy Effect Common Fee Collection?

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J.A. from outside of Connecticut writes:

Dear Mister Condo,

If a condo owner files for bankruptcy, does this mean the unit owner will never ever pay the condo fee as long as s/he resides in the condo? Or is there a time limit?

Mister Condo replies:

J.A., when a unit owner files for protection from creditors through bankruptcy, the association is at risk of losing some or all of the unpaid common fees. Further complicating this issue is the fact that each state has its own set of laws on how much of the delinquency can be collected in other methods than suing the unit owner. Most states allow for a liquidation of the unit once the bankruptcy protection period is over and the dues remain unpaid. That means that if the association follows proper procedures, the state’s court system may allow an auction with the association receiving its share of the proceeds. Again, state laws vary so the actual amount that the association can recoup may be limited to a number of months (6, 9, 12, etc.) and reasonable attorney and collection costs. Some states grant a priority lien (the association gets paid first) while others grant the association simple creditor status and give priority to mortgage holders first. That is why it is typical for a mortgage holder to foreclose against a unit owner instead of an association. However, when real estate prices are lower than the mortgage amount, many banks are not motivated to begin the foreclosure process. This can leave the association quite vulnerable as month after month of common fees go unpaid. My best advice is that should your association find itself owed common fees from a delinquent unit owner, the association should always work with a collection professional. This may be a trained collections agent or the association’s attorney. It is in the best interest of all unit owners that strong collection efforts are taken against the delinquent unit owner. All the best!

4 thoughts on “How Does Condo Unit Owner Bankruptcy Effect Common Fee Collection?

  1. In CT, the Association has a lien against the unit and the lien continues after the bankruptcy. The personal obligation of the unit owner up to the date of filing disappears. Any common charges after the bankruptcy are collectible. I recommend waiting out the bankruptcy before foreclosing the lien to avoid violation of the bankruptcy stay.

  2. While an owner may receive a discharge of his/her personal liability for the pre-petition amounts, the association may still enforce its lien rights under state law for such pre-petition amounts. What type of bankruptcy the owner files is also important. The Bankruptcy Code provides that owners are liable for the post-petition amounts; however, there is case law around the country stating that owners may not responsible for such post-petition amounts in a Chapter 13 case where the owner surrenders the property as part of his/her Chapter 13 plan. The association should consult with its legal counsel in reviewing the owner’s bankruptcy documents and obtaining advice on the association’s options for each particular situation. – Quinn Sperry of Morris Sperry, Utah.

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